The Department of Labor (DOL) has answered frequently asked questions (FAQs) to help employee benefit plan participants, beneficiaries, sponsors and employers impacted by the COVID-19 outbreak. This article contains the FAQs addressing employee benefit plan retirement benefits.
The FAQs addressing employee benefit plans’ health benefits can be found here.
On March 13, 2020, the President declared a national emergency (Emergency Declaration) due to the novel coronavirus (COVID-19) outbreak. As a result of that Emergency Declaration, many nonessential businesses temporarily shut down to stop the spread of the virus.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136) expands access to retirement plan distributions and loans for qualified individuals who are diagnosed with coronavirus, whose spouse or dependent is diagnosed with coronavirus, or who experience adverse financial consequences due to certain virus-related events including quarantine, furlough, or layoff, having hours reduced, or losing child care.
Under the CARES Act, distributions taken by a qualified individual from an eligible retirement plan on or after January 1, 2020, and before December 31, 2020, are considered “coronavirus-related distributions” to the extent they do not exceed $100,000 in the aggregate. These distributions are not subject to the 10% penalty tax under Code Sec. 72(t), are treated as satisfying certain distribution restrictions, and are exempt from some other distribution-related rules, including 20% withholding and the Code Sec. 402(f) notice requirement.
The CARES Act also increased the limit for new plan loans (plan loans taken out after March 27, 2020). Qualified individuals may take plan loans up to the lesser of $100,000 (instead of the usual $50,000) or 100% (instead of the usual 50%) of their vested account balance. To be eligible loans must be taken out no later than September 22, 2020.
DOL answers FAQs about employee plans’ retirement benefits.
The DOL has answered FAQs about retirement benefits for employee benefit plan participants, beneficiaries, sponsors and employers impacted by the COVID-19 outbreak.
Q13. My employer’s place of business is temporarily closed due to the COVID-19 outbreak. Who should I contact to file a claim for retirement benefits or make sure that I will continue to receive my pension payments on time?
A. First, contact your plan administrator (that could be your employer or the labor organization sponsoring the plan, or someone they’ve appointed to administer the plan). If you don’t know who the administrator is, check your plan’s Summary Plan Description (SPD), which should explain how to identify and locate the plan administrator, and how to apply for a benefit.
You could also contact your employer’s human resource or personnel department. If that’s not possible, you could reach out to the plan trustee who holds the plan assets, a mutual fund, insurance company, bank or other financial institution providing services to the plan, a third party who handles the administrative functions of the plan, or the plan accountant (they may be identified in previous correspondence or benefit statements). If none of those options work, you may contact one of DOL’s benefits advisors at www.askebsa.dol.gov or 1-866-444-3272.
Q14. My pension payment normally arrives on a particular day each month. It did not come this month. What should I do?
A. Contact your plan administrator. Ask whether the plan is having operational problems or whether this problem is limited to your payment. If the problem is limited to your payment, discuss how to resolve your problem. If the delay involves a plan operation issue, ask what efforts are being made to make timely payments. Your employer or former employer may be able to get answers to your questions.
Companies related to your employer, for example a parent or subsidiary, also may be able to help you get information on the status of payments. You could also contact your plan’s third-party administrators, investment advisors, and trustees. If you still can’t get information about the status of your benefits, you may contact one of DOL’s benefits advisors at www.askebsa.dol.gov or 1-866-444-3272.
Q15. How can I make changes in the way my 401(k) plan account is invested if the plan official or service provider responsible for implementing my investment decision is adversely affected by the COVID-19 outbreak?
A. First, follow normal procedures described in your SPD or other plan documents. If your employer or the financial services firm holding your account was affected by the COVID-19 outbreak, there may be a delay in processing your directions to change or reallocate your investments. If so, you should contact the plan administrator or other plan officials, such as the employer sponsoring the plan, trustee, or the party providing administrative services to the plan to learn what’s being done to restore the plan’s normal operations. If you cannot obtain this information, you may contact one of DOL’s benefits advisors at www.askebsa.dol.gov or 1-866-444-3272.
Q16. Can I get money out of my retirement plan if I need financial assistance now?
A. You can only borrow or withdraw funds if your plan allows it. Your SPD or other plan documents should explain if your plan allows loans or withdrawals in the event of hardship or disability. Under the CARES Act, you may be able to take advantage of temporary liberalized plan loan and distribution rules if you or certain members of your family are adversely affected by the COVID-19 outbreak. For additional information, call the IRS at 1-877-829-5500.
If you wish to take money out of your retirement plan in the form of a loan or a hardship withdrawal, you should contact your plan administrator, plan sponsor, or other plan official. If you can’t contact any of these officials, you may contact one of DOL’s benefits advisors at www.askebsa.dol.gov or 1-866-444-3272.
Q17. Are there any downsides to receiving a preretirement distribution of my retirement benefits?
A. Yes. Because a preretirement distribution of retirement benefits may be considered income, such a distribution could affect your eligibility to receive unemployment compensation. Each state sets its own unemployment insurance benefits eligibility guidelines; therefore, you should review your state’s latest updates on unemployment insurance changes related to COVID-19 before you act.
If you are not eligible for unemployment compensation, a preretirement distribution of retirement benefits may be useful during these difficult times. However, a preretirement distribution may be considered income, so such a distribution may result in more income tax.
If you cash out your 401(k) or other employer-sponsored retirement plan when leaving a job and you are younger than 59½ years old, you may have to pay a 10% additional federal income tax, along with other state and federal taxes. Under the CARES Act, special temporary rules may apply for “coronavirus-related distributions” of $100,000 or less made in 2020.
Q18. When must my retirement plan pay my claim for benefits?
A. A plan may take a reasonable amount of time to review a benefits claim before making a payment. Plan administrators must act prudently and follow the procedures in the plan documents. Your SPD or other plan documents should provide information on those procedures. If you have specific questions, you should contact the plan administrator.
Q19. Is my retirement plan required to give me a lump-sum distribution?
No. Federal law does not require plans to offer lump-sum distributions, although many do. Defined contribution plans (such as 401(k) plans) are more likely to offer a lump sum than traditional defined benefit pension plans. Read your SPD and other plan documents to see if your plan offers lump sum distributions and for any spousal consent requirements.
Q20. I am the spouse of a deceased plan participant. How do I know what benefits I am entitled to; how do I file a claim; and what proof will I need to give the plan?
A. One of the most important documents you should have is the plan’s SPD. It outlines the plan rules including benefit rights, the way benefits are calculated, how to apply for benefits, and how to appeal a denial of a claim for benefits. Your plan administrator must provide you with a copy of the SPD if you request it in writing.
A delay in responding to your request during the outbreak period (March 1, 2020 through the 60th day following the end of the Emergency Declaration) will not violate federal law if the plan administrator acts in good faith and furnishes the SPD as soon as administratively practicable under the circumstances.
You can also ask the plan administrator about the amount of benefits your spouse had earned to date and vesting status (the amount of benefits earned that cannot be forfeited). This is important to know, whether you withdraw your money now or later. You should also ask the plan administrator what information the plan requires to decide your claim and how to file the claim.
Q21. If my employer faces economic difficulties due to the COVID-19 outbreak, can my employer terminate my retirement plan, and if so, what happens to my benefits?
A. Plan termination depends on the type of retirement plan. The benefits you are entitled to will depend on the type of plan. If you were covered by a defined benefit pension plan, such as a traditional pension plan or a cash balance pension plan, your employer may terminate the plan if it has sufficient assets to pay all plan benefits or if your employer meets specific criteria in the law showing that it cannot afford to continue the plan. Check your plan documents and SPD to see what benefits you’re entitled to.
The Pension Benefit Guaranty Corporation (PBGC) guarantees vested benefits in most private-sector defined benefit pension plans, subject to limits in the law. For information on PBGC’s plan termination insurance program and PBGC guarantees, see PBGC’s Pension Plan Termination Fact Sheet .
If you were covered by a defined contribution plan, such as a 401(k) plan, profit sharing plan, or employee stock ownership plan, you are always 100% vested in the portion of your account attributable to the contributions you made to the plan, along with any investment gains and earnings on your contributions, less any investment losses. In addition, depending on the terms of the plan, you may be vested in part or all of the employer contributions allocated to your account along with investment gains and earnings thereon, less any investment loss. You will automatically vest in 100% of your account when the plan is terminated.
Q22. I haven’t received a benefit statement from my 401(k) plan. When can I expect to receive it?
A. If plan officials are responsible for investing your account, the plan must provide you an annual benefit statement. If you did not receive your 2019 benefit statement by February 14, 2020, you should contact your plan administrator. The plan administrator does not have to provide you an annual benefit statement for 2020 until February 14, 2021.
If you are responsible for directing how your account is invested, the plan must provide you quarterly benefit statements. If you did not receive a benefit statement for the fourth quarter (October 1 through December 31) of 2019 by February 14, 2020, you should contact your plan administrator. The COVID-19 outbreak may delay the preparation and delivery of 401(k) and other defined contribution plan quarterly benefit statements due after March 1, 2020. A delay in furnishing a benefit statement during the outbreak period (March 1, 2020 through the 60th day following the end of the Emergency Declaration) will not violate Federal law if the plan administrator acts in good faith and furnishes your benefit statement as soon as administratively practicable under the circumstances.
Q23. Where can I get more information on my retirement benefit rights?
A. If you have questions about your retirement benefit rights, want to request copies of publications, or need assistance in obtaining your benefits, you may contact one of DOL’s benefits advisors electronically at www.askebsa.dol.gov or by calling 1-866-444-3272.
To continue your research on the taxation of distributions from qualified plans, see FTC 2d/FIN ¶H-11000.
Subscribe to our Checkpoint Daily Newsstand email to get all the latest tax, accounting, and audit news delivered to your inbox each weekday. It’s free!